Annette Atkinson v. Brian Rose, Et Ux

COURT OF APPEALS OW
_STATE OF WASHINGTON

2018 APR 1 6 Ail 9: 58

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

ANN ETTE ATKINSON, a Washington ) No. 77762-9-1
resident; HIGH WASHINGTON, LLC )
d/b/a HVVY 420, a Washington limited ) DIVISION ONE
liability company; AACE THERAPY, )
LLC, a Washington limited liability )
company, )
)
Respondents, )
)
v. )
)
BRIAN ROSE and JANE DOE ROSE, )
and their marital community; MICHELLE)
BEARDSLEY and JOHN DOE )
BEARDSLEY, and their marital )
community; SWEET LEAF 2, LLC d/b/a )
Destination Highway 420, a Washington) UNPUBLISHED OPINION
limited liability company; WOOHOO )
ENTERPRISES, LLC, a Washington )
limited liability company, )
)
Appellants. )
BRIAN ROSE, a Washington resident, )
and MICHELLE BEARDSLEY, a )
Washington resident, )
)
Third-Party Plaintiffs, )
)
v. )
)
CHERYL JESTER and "JANE DOE" )
JESTER, Washington residents and the)
marital community comprised thereof, )
and XYZ MARKETING, LLC, a ) FILED: April 16, 2018
No. 77762-9-1/2

Washington limited liability company, )
)
Third-Party Defendants. )
CHERYL JESTER, a Washington )
resident, )
)
Counterclaim/Third-Party Plaintiff, )
)
v. )
)
BRIAN ROSE and JANE DOE ROSE, )
and their marital community; MICHELLE)
BEARDSLEY and JOHN DOE )
BEARDSLEY, and their marital )
community; and SWEET LEAF, LLC, a )
Washington limited liability company. )
)
Counterclaim/Third-Party Defendants.)

SCHINDLER, J. — Annette Atkinson and Brian Rose are the sole owners and

members of Woohoo Enterprises LLC (Woohoo). Under the terms of the Woohoo

"Operating Agreement," Atkinson and Rose agreed to enter binding mediation or

arbitration in the event of a "deadlock." The Operating Agreement defines "deadlock" as

the failure to reach an agreement "after negotiations." Because the undisputed record

establishes there was no deadlock, we affirm denial of the motion to compel arbitration.

After Washington voters legalized the sale of recreational marijuana, Annette

Atkinson, Brian Rose, Cheryl Jester, and Michelle Beardsley formed a number of limited

liability companies(LLCs), including High Washington LLC, AACE Therapy LLC, and

Sweet Leaf 2 LLC. The newly formed LLCs submitted applications to the Washington

State Liquor and Cannabis Board to operate retail marijuana businesses in Kitsap

County.

In July 2013, Atkinson and Rose formed an LLC to purchase property zoned to

operate a retail marijuana business, Woohoo Enterprises LLC (Woohoo). Atkinson and

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Rose signed the Woohoo "Operating Agreement." The Operating Agreement governs

the management of Woohoo. The Operating Agreement designated Atkinson and Rose

as the managing members. In article IV, Rose and Atkinson agreed to hold an annual

meeting to assess the current status of the LLC and transact necessary business.

Section 4.3 allows the members to take action without a meeting "if an agreement is

consented to, in writing, by all members who would be entitled to vote." Article VI

governs management of the business and gives Rose and Atkinson "co-equal

management authority." Section 6.2 states,"Members may take part in the control,

management, direction, or operation of the Company's affairs and shall have powers to

bind the Company." But "[a]ny legally binding agreement must be signed by all

Members or present approval of all other Members for one specific Member to sign the

binding agreement."

Section 5.5 of the Woohoo Operating Agreement contains an arbitration

provision. The members agreed to "enter binding mediation or arbitration" in the event

of a "deadlock." The Operating Agreement defines a "deadlock." "Deadlock occurs

when members, after negotiations, cannot reach an agreement."1

Atkinson and Rose each contributed $80,000 in capital to Woohoo to purchase

the property to operate a retail marijuana business. Woohoo purchased property

located at 1110 Charleston Beach Road West in Bremerton. High Washington LLC

entered into a lease agreement with Woohoo and agreed to pay $1,000 per month to

lease the property located at Charleston Beach Road to operate a retail marijuana

business. The lease term began October 1, 2014 and expired on September 30, 2017.

1 Boldface in original.

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Rose signed the lease on behalf of Woohoo. Atkinson signed the lease on behalf of

High Washington.

In 2015, Atkinson, Rose, Jester, and Beardsley disagreed about the ownership of

the LLCs. Atkinson and Rose also disagreed about the management of Woohoo.

On February 18, 2016, Atkinson, High Washington LLC, and AACE Therapy LLC

filed a lawsuit against Rose, Beardsley, Green Zen LLC, Sweet Leaf 2 LLC, and

Woohoo. The complaint alleged four causes of action.

The first cause of action alleges Atkinson, Rose, Jester, and Beardsley

independently own and operate the LLCs. Atkinson sought a declaratory judgment that

Rose, Beardsley, and Sweet Leaf 2 LLC have no legal claim or right to any current or

future profits for High Washington LLC or AACE Therapy LLC.

The second and third causes of action allege Rose violated the Operating

Agreement and breached his fiduciary duty to Atkinson in May 2015 by unilaterally

removing Atkinson from the Woohoo KeyBank account. Atkinson alleged Rose had

used Woohoo funds for his personal gain and she had paid outstanding Woohoo

obligations with her personal funds. The complaint contends that after Rose blocked

her from the account, he later tried to reinstate Atkinson on the bank account but was

unsuccessful in doing so. The complaint also alleged that Rose sought to evict High

Washington LLC without Atkinson's authorization for an alleged failure to pay rent.

Atkinson sought removal of Rose as a manager of Woohoo, injunctive relief

preventing Rose from interfering with Woohoo or High Washington LLC, and damages

for breach of the Operating Agreement.

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Rose filed an answer. Rose did not assert the right to compel arbitration under

the Woohoo Operating Agreement. The parties engaged in discovery. On November

10, 2016, Atkinson filed a third amended complaint.

On December 29, 2016, Rose filed a motion to compel arbitration on the second

and third causes of action for breach of the Woohoo Operating Agreement. Rose

argued he did not waive the right to compel arbitration under the Operating Agreement.

On January 13, 2017, Rose filed an answer and affirmative defenses to the third

amended complaint.2 For the first time, Rose asserted the second and third causes of

action are subject to a binding arbitration agreement.

The court denied the motion to compel arbitration.3 The court ruled the

arbitration provision of the Operating Agreement did not apply to the unilateral action of

Rose to remove Atkinson from the Woohoo bank account in May 2015. The court also

ruled Rose waived the right to compel arbitration. The court denied the motion for

reconsideration.

Rose contends the court erred in denying his motion to compel arbitration. Rose

contends the Operating Agreement gives him the right to compel arbitration of the

claims that he breached his fiduciary duty and violated the Operating Agreement.4

2 Rose asserts he attempted to file the answer to the third amended complaint on December 21,
2016 and did not realize until January 13,2017 that the answer was not filed.
3 The court instructed the parties to present an order denying the motion but no order was filed.

"Rose also assigns error to the order denying his motion for reconsideration but does not
address this assignment of error in his brief. Rose has waived any challenge to the motion for
reconsideration. See Cowiche Canyon Conservancy v. Bosley, 118 Wn.2d 801, 809, 828 P.2d 549
(1992)(plaintiffs waived assignment of error by failing to present argument on the issue).

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We review a decision denying a motion to compel arbitration de novo. Gandee v.

LDL Freedom Enters., Inc., 176 Wn.2d 598,602,293 P.3d 1197(2013); Saleemi v.

Doctor's Assocs., Inc., 176 Wn.2d 368, 375, 292 P.3d 108 (2013). State and federal

law strongly favor arbitration and require courts to draw all presumptions in favor of

arbitration. Gandee, 176 Wn.2d at 603. The party opposing arbitration has the burden

to show the agreement does not apply or is unenforceable. Townsend v. Quadrant

Corp., 173 Wn.2d 451, 455, 268 P.3d 917(2012); Otis Hous. Ass'n, Inc. v. Ha, 165

Wn.2d 582, 587, 201 P.3d 309(2009).

We engage in a two-part inquiry to determine whether to enforce an arbitration

provision. Wiese v. CACH, LLC, 189 Wn. App. 466, 474, 358 P.3d 1213(2015). We

determine "whether the arbitration agreement is valid, and if so, whether the agreement

encompasses the claims asserted." Wiese, 189 Wn. App. at 474. If we can say fairly

that the arbitration agreement covers the claims, our inquiry ends. In re Marriage of

Pascale, 173 Wn. App. 836, 842, 295 P.3d 805(2013). Where an arbitration provision

uses broad language such as "any disputes," all doubts must be resolved in favor of

arbitration. See, e.q., Wiese, 189 Wn. App. at 477 (Arbitration provision applied to

"'[a]ny claim or dispute. . . arising from or relating in any way to this Agreement.'");

Pascale, 173 Wn. App. at 844 (Arbitration agreement applied to"'[a]ny disputes in the

drafting of the final documents or any other aspect of this agreement(form or

substance), or any issue not discussed.' ").5

5 Alteration in original.

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The Woohoo Operating Agreement does not use broad language such as "any

disputes." The Operating Agreement mandates mediation or arbitration only in the

event of a "deadlock" defined as failing to reach an agreement through "negotiations."

Rose and Atkinson do not dispute that the arbitration provision in the Woohoo

Operating Agreement is valid and enforceable. The parties dispute whether the

condition precedent of a "deadlock" triggered binding arbitration of the claims against

Rose for breach of fiduciary duty and violation of the Operation Agreement. Atkinson

contends the crux of the claims against Rose for breach of fiduciary duty and violation of

the Operation Agreement is the unilateral action of Rose to remove Atkinson from the

Woohoo KeyBank account. Further, Rose independently sought to evict High

Washington LLC. Because the undisputed record shows the parties did not engage in

negotiations before Rose removed Atkinson from the bank account in May 2015 and

attempted to evict High Washington LLC, Atkinson asserts the court did not err in

denying the motion to compel arbitration. We agree.

The undisputed record establishes Rose did not discuss or attempt to reach an

agreement with Atkinson before removing Atkinson from the KeyBank account in May

. 2015 or before attempting to evict High Washington LLC.

Citing the dictionary, Rose concedes "negotiation" describes "'discussion aimed

at reaching an agreement.'" And in his declaration in support of the motion to compel

arbitration, Rose concedes he unilaterally removed Atkinson from the Woohoo bank

account. But Rose asserts he "took action to temporarily block [Atkinson]from misusing

the company's funds" and the parties entered into negotiations. Rose argues he and

Atkinson entered into negotiations because he later communicated with Atkinson about

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reinstating her on the Woohoo bank account. According to Rose, Atkinson refused to

cooperate. But Rose cites no evidence to show any communication or negotiation to

reach an agreement before he took unilateral action in May 2015 or before he

attempted to evict High Washington LLC.

Because the unilateral action of Rose in May 2015 to remove Atkinson from the

bank account and the attempted eviction are the crux of the cause of action for breach

of fiduciary duty and the cause of action for violation of the Operating Agreement, we

conclude no deadlock occurred and the condition precedent for arbitration was not met.

We affirm denial of the motion to compel arbitration.

WE CONCUR:

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